Theoretically, Islamic Finance sounds great but the way it has been implemented within the flawed conventional, fractional-reserve banking system is a farce.
I am sorry to say that so many people have been duped into ‘back-door’ banking interest is very sad.
I studied finance at Columbia University Business School in 1993-94, and later (2009-2010) studied Islamic Finance in Malaysia just to confirm what I had suspected about this flawed model.
After the 2009 GFC it was touted that Islamic Finance was unscathed by the crisis, but then DP World debt default happened and the fragility of Islamic Finance was exposed.
Unfortunately, nothing has been solved by major countries (US, UK, EU, Japan) after the last financial crisis, and the world took on $60 trillion more debt (now standing around $217.5 trillion according to McKinsey & Company).
In the meantime, China’s banking and Shadow Banking credit has grown from $6 trillion (2008) to $27 trillion. So there are many bubbles that have been blown in Stock, Bond, Real-Estate and Currency markets in the developed and emerging countries.
I do not think Islamic Finance will be that lucky next time when the world’s Real-GDP will not be able to sustain this mountain of a debt, especially, in a rising interest rate environment as the bond vigilantes wake up to the reality of defaults in many sovereign bonds.
As Prof. Ludwig von Mises said in 1931:
“The only way to stop a credit collapse is to let the bubble deflate voluntarily, or print money to sustain a bubble for a while, but eventually it completely destroys the currency regime of the country involved”.
Our beloved Prophet (peace and blessings of God (Mighty and Majestic) be upon him) already forewarned believers that:
Abu Bakr ibn Abi Maryam (may God (Mighty and Majestic be pleased with him) narrated that the Prophet (peace and blessings of God (Mighty and Majestic) be upon him) said, “A time is certainly coming upon mankind when one who does not have the ‘yellow’ (Gold) or the ‘white” (Silver) will not be able to meet his daily expenses”. (Tabarani’s Big Book of Hadith)
I believe we are entering that time of instability when no more monetary shenanigans can hold the house of cards together, and the current model of Islamic Finance will crumble as well, thus impoverishing the Muslims even further – as if WWI, WWII, Iraq, Syrian, Libyan Wars did not destabilise Muslims enough.
As the West slides into Economic Depression sometime in 2017, fanatics like President Trump, Mr. Gert Wilder of Holland, Ms. Marine Le Pen of France will call for WWIII to get their respective economies out of depression, just as they needed WWII to get America out of depression (which started in 1929) in 1943 – when the entire world was engulfed in the midst of WWII.
We should take hints from all the Russian and Chinese demonisation happening in the US and Europe that is going on in ‘Fake News’ corporate-controlled media. The plan to start a global war in Libya, Syria and Ukraine did not pan-out by the Grace of God (Mighty and Majestic), but that does not mean that the super elite’s of the world did not create mayhem in those countries.
Now there is a greater plan to get Saudi Arabia and Iran to go head-on for the benefit of Greater Israel (Euphrates to Nile).
Coming back to Islamic Finance…it is unfortunate that Muslim Bankers have gotten the Muslim masses into a fraudulent and faulty financial system that is going to crash soon and funnel-up the wealth to the super elites of the world.
Those who did not heed the Prophet’s warnings seriously about our times will have to pay the price to come to wisdom. I hope journalists who are touting the merits of Islamic Finance will do a little more research to realise that no house built on a bad foundation can withstand the slightest storm.
I would suggest you to read Prof. Charles Kindleberger’s, “Manias, Panics, and Crashes – A History of Financial Crises”.
May God (Mighty and Majestic) protect our traditional scholars, their followers and believers in the coming hard times and greater wars, Ameen!
B.Sc. (Mech Eng, Columbia University, USA)
M.Sc. (Mech Eng. Texas A&M University, USA)
MBA (International and Corporate Finance, Columbia University, USA)
Ph.D. (DROP-OUT; INCEIF, Malaysia)
PG Diploma (Energy Management and Renewable Energy, New Zealand)